Reddit, Inc. (NYSE: RDDT)

Reddit delivered exceptional financial performance in Q1 2025, with total revenue increasing 61% year-over-year to $392.4 million. This growth was driven by an impressive 61% increase in advertising revenue to $358.6 million, complemented by a 66% increase in other revenue to $33.7 million. The revenue growth significantly outpaced the 31% growth in Daily Active Uniques (DAUq), demonstrating Reddit’s improved monetization capabilities.

Gross margin showed substantial improvement, expanding 190 basis points year-over-year to 90.5%, reflecting Reddit’s highly scalable platform and efficient cost structure. This expansion was achieved while supporting significant user growth and enhanced platform capabilities, highlighting the operational leverage in Reddit’s business model.

The most remarkable financial achievement was Reddit’s transition to profitability, with net income of $26.2 million (6.7% of revenue) compared to a net loss of $(575.1) million in the prior year. This $601.3 million improvement was partly due to the absence of significant IPO-related stock-based compensation expenses incurred in Q1 2024, but also reflected substantial operational improvements. Diluted earnings per share (EPS) reached $0.13, compared to $(8.19) in the prior year.

Adjusted EBITDA, which excludes stock-based compensation and other non-recurring items, reached $115.3 million (29.4% of revenue), an improvement of $105.2 million from $10.0 million (4.1% of revenue) in the prior year. This represents a remarkable 25.3 percentage point improvement in Adjusted EBITDA margin year-over-year, highlighting Reddit’s focus on profitability and operational efficiency.

Operating cash flow was strong at $127.6 million, an improvement of $95.5 million from the prior year. Free Cash Flow reached $126.6 million after minimal capital expenditures of just $1.0 million (less than 1% of revenue), demonstrating Reddit’s capital-light business model and strong cash generation capabilities. This positions the company well for future growth investments and potential shareholder returns.

Global User Growth was robust with Daily Active Uniques (DAUq) increasing 31% year-over-year to 108.1 million. Weekly Active Uniques (WAUq) showed similar growth, reaching 401.3 million, representing a 31% increase from the prior year. This strong user growth reflects Reddit’s increasing appeal as a platform for authentic community engagement and discussions.

Geographic Performance showed particularly impressive growth in international markets, with international DAUq growing 41% year-over-year to 58.0 million, outpacing U.S. DAUq growth of 21% to 50.1 million. International users now represent 54% of Reddit’s total daily active users, up from 50% in the prior year, highlighting the platform’s global expansion and appeal beyond its U.S. origins.

User Engagement metrics revealed interesting patterns, with logged-out DAUq growing faster (38% year-over-year) than logged-in DAUq (23% year-over-year). This suggests Reddit’s content is increasingly being consumed by casual browsers, presenting both a challenge and opportunity for user conversion. Despite this, the 23% growth in logged-in users demonstrates strong engagement from Reddit’s core community members.

Monetization Efficiency improved significantly, with Average Revenue Per User (ARPU) increasing 23% year-over-year to $3.63 globally. U.S. ARPU showed even stronger growth, increasing 31% to $6.27, while international ARPU grew 22% to $1.34. This improvement in ARPU across all geographies demonstrates Reddit’s enhanced advertising products and improved targeting capabilities, driving more value from its growing user base.

The combination of strong user growth and improving ARPU resulted in the impressive 61% revenue growth for the quarter, outpacing the 31% user growth. As Reddit continues to enhance its advertising products and expand its international monetization, there remains significant potential for further ARPU expansion, particularly in international markets where the ARPU is still only 21% of U.S. levels.

U.S. Revenue grew 57% year-over-year to $313.9 million, representing 80% of total revenue. This growth was driven by a combination of increased users (21% growth in U.S. DAUq) and improved monetization (31% growth in U.S. ARPU). The substantial improvement in U.S. ARPU to $6.27 demonstrates the effectiveness of Reddit’s advertising products and targeting capabilities in its most mature market.

International Revenue showed even stronger growth, increasing 82% year-over-year to $78.5 million. This impressive growth was driven by a combination of robust user growth (41% in international DAUq) and improving monetization (22% growth in international ARPU). Despite the strong growth, international markets represent significant future growth potential, as they account for 54% of users but only 20% of revenue.

The ARPU Gap between U.S. and international markets remains substantial, with international ARPU at $1.34 compared to U.S. ARPU at $6.27. This represents a significant opportunity for future revenue growth as Reddit continues to enhance its international advertising capabilities and increase advertiser adoption in these markets. Closing even a portion of this gap could drive substantial revenue growth in coming years.

Reddit’s geographic expansion strategy appears to be working effectively, with international markets driving both user growth and increasingly significant revenue contributions. The company’s ability to grow international revenue faster than international user growth suggests improving monetization capabilities across global markets, while still leaving substantial headroom for future ARPU expansion.

Reddit demonstrated remarkable improvement in profitability metrics in Q1 2025, with significant margin expansion across multiple measures:

• Gross Margin: Expanded 190 basis points year-over-year to 90.5%, reflecting Reddit’s scalable platform and efficient cost structure
• Operating Margin: Improved to 1.0% from -242.5% in the prior year, a transformation from substantial losses to operating profitability
• Net Margin: Reached 6.7% compared to -236.7% in the prior year, a remarkable improvement of 243.4 percentage points
• Adjusted EBITDA Margin: Expanded significantly to 29.4% from 4.1% in the prior year, a 25.3 percentage point improvement

These profitability improvements were driven by several key factors:

• Revenue Growth: The 61% increase in revenue provided significant operating leverage
• Normalized Stock-Based Compensation: Stock-based compensation decreased substantially from IPO-related expenses in Q1 2024
• Operational Efficiency: Research and development, sales and marketing, and general and administrative expenses all decreased significantly as a percentage of revenue
• Interest Income: $20.5 million in other income, primarily from interest income on cash and marketable securities

Cost discipline was evident across the business, with total costs and expenses decreasing by 53.3% year-over-year despite the significant growth in users and revenue. As a percentage of revenue, costs and expenses decreased dramatically from 342.5% in Q1 2024 to 99.0% in Q1 2025. While some of this improvement was due to normalized stock-based compensation expenses compared to IPO-related expenses in the prior year, the underlying operational leverage in the business is clear.

The company’s ability to generate substantial cash flow while maintaining minimal capital expenditures highlights the capital-efficient nature of Reddit’s business model. Capital expenditures were just $1.0 million, less than 1% of revenue, allowing the company to generate $126.6 million in Free Cash Flow for the quarter. This capital-light model provides Reddit with significant flexibility to invest in growth initiatives or return capital to shareholders in the future.

Reddit maintains an exceptionally strong balance sheet, providing significant financial flexibility to invest in growth opportunities:

• Cash & Marketable Securities: $1.95 billion as of March 31, 2025, representing approximately 88% of total assets
• Total Assets: $2.44 billion, primarily consisting of cash, marketable securities, and accounts receivable
• Total Liabilities: $219.9 million, consisting primarily of accounts payable and accrued expenses
• Stockholders’ Equity: $2.22 billion, reflecting the company’s strong capitalization

Reddit’s financial position benefited from strong operating cash flow of $127.6 million during the quarter, an improvement of $95.5 million from the prior year. This cash generation helped increase the company’s cash and marketable securities balance, despite modest financing outflows related to taxes paid for net share settlement of restricted stock units.

The company’s significant cash position and limited capital expenditure requirements provide ample resources for strategic investments, potential acquisitions, or shareholder return programs in the future. With minimal debt and strong cash flow generation, Reddit has positioned itself for financial flexibility while maintaining the ability to invest in growth initiatives.

Total fully diluted shares outstanding were 206.0 million as of March 31, 2025, a decrease of 0.1% from the prior quarter. This modest share count reduction suggests disciplined management of share dilution, which benefits existing shareholders. As Reddit continues to generate positive cash flow, there may be opportunities for share repurchases or other shareholder return programs in the future, although the company has not announced any such programs at this time.

Reddit provided the following guidance for the second quarter of 2025:

• Revenue expected to be in the range of $410 million to $430 million, representing year-over-year growth of approximately 48% to 55% based on Q2 2024 revenue of $277.2 million.
• Adjusted EBITDA expected to be in the range of $110 million to $130 million, representing approximately 26.8% to 30.2% of revenue at the midpoint.

The Q2 guidance suggests continued strong revenue growth, albeit at a slightly moderated pace compared to the 61% growth in Q1. This may reflect management’s conservative approach to guidance or expectations for some normalization of growth rates from the exceptional Q1 performance.

The Adjusted EBITDA guidance suggests continued strong profitability, with margins similar to the 29.4% achieved in Q1. This indicates that Reddit expects to maintain its operational efficiency while continuing to invest in growth initiatives.

Management did not provide full-year guidance, suggesting the company may be maintaining flexibility given its rapid growth trajectory and evolving business model. However, the robust Q2 guidance indicates confidence in the company’s near-term growth and profitability prospects.